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Oregon Democrats bite the bullet on tax increases

One legislative reporter called it a “billion-dollar day,” and the Democrats who control Oregon’s Legislature and the governorship certainly laid it on as they moved Friday toward adjourning their six months in session.

Three measures approved by the Legislature will raise some $1.1 billion in the 2009-2011 biennium. There is a sharp contrast with the Democratic-controlled Washington Legislature, also with a Democrat as governor, such that one can only wonder which strategy will best preserve party control after elections in 2010.

Washington Democrats avoided serious tax increases like the plague, following the lead of Speaker Frank Chopp and Gov. Chris Gregoire, basically leaving tax increases to local governments. (Seattle will predictably pick up the challenge, just this week sending a big low-income-housing measure to the voters in November.) Oregon’s legislative leadership, like Washington’s, has a super-majority requirement to pass a tax measure, and barely got the needed 60 percent in the Senate, when one Democrat fled the caucus on Thursday, cut a deal with Republicans, and returned to provide the margin in an 18-11 vote.

Gov. Ted Kulongoski will sign the legislation, but in referendum-happy Oregon the taxes could wind up on the ballot if voters collect enough signatures. And Democrats might well get their comeuppance from voters in the 2010 elections, as Susan Nielsen predicted in a column in the Oregonian, noting “the lure of self-sabotage” for the Democrats in power.

Overreaching or not, the Democrats approved: An increase in personal income taxes for taxable income above $125,000 for a single person or $250,000 for a couple, raising $472 million in 2009-11, less in later years as the rate drops. Increases in corporate taxes on a sliding scale, raising $261 million in 2009-11. (A portion of the added corporate taxes go into the state’s “rainy-day” fund— the compromise exacted by the holdout Senate Democrat, Mark Hass of Beaverton.) Higher taxes on hospitals and health-insurance premiums, allowing coverage for some 115,000 uninsured children and adults; some of the $400 million will be offset by federal funds.

Republicans for many years have used the “tax-and-spend liberals” label to tar even the most cautious Democrats. This year the Oregon Legislature has seemingly written the script for a revival of the label. “We’re back to business as usual,” Rep. Larry George of Sherwood told The Oregonian. “We’re going to continue to spend and spend.”

The question is whether this line of attack will work in hard times, or whether Democrats can point to specific cases where use of the added funds helped keep teachers teaching, workers working, and basic services provided. Will voters like “the party of tax and spend” or “the party of No?”

Meanwhile, in Olympia,Gov. Gregoire signed (on May 19) a budget with no general tax increases, relying instead on a hodgepodge of federal stimulus funds and quick fixes to hold the budget line for two years. Republicans were denied the “tax and spend” line they will exploit in Oregon. “They [Republicans] absolutely were persuaded that we were going to come in here and raise taxes, and it didn’t happen. It didn’t happen,” Gregoire said in signing the budget.

Although there is remarkably little back-and-forth between the legislatures of the adjoining states, they do watch their counterparts on big issues, and certainly this is a time when interest in taxes and budgets is keen. There will be Washington Democrats who would have loved to had the option to do what Oregon counterparts did. “All of us were miserable together when we made the very difficult choices for the people of the state of Washington,” Gregoire said as she signed. In equal measure, Democrats in tight Oregon races held to their caucus line, knowing that it sets them up for political misery in 2010.

The difference may be in the willingness of a governor to lead the battle for taxes to heal the economic wounds. Kulongoski cannot seek a third term in 2010, owing to term limits. Gregoire can. But the parlous state of Oregon’s finances is also a factor. The state has been rocked by initiative limits on revenue-raising and has also experienced a more prolonged and deeper economic slump than has Washington.

An average Oregon income-earner will pay no more in direct taxation as a result of the tax increases, but the “tax and spend” label clearly will be applied with a very broad brush next year. Washington Democrats gained some insulation from that charge, at least for now, but much depends on quick economic recovery.

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Floyd J. McKay, professor of journalism emeritus at Western Washington University, was a print and broadcast journalist in Oregon for three decades. Recipient of a DuPont-Columbia Broadcast Award for documentaries, and a Nieman Fellowship at Harvard, he is also a historian and holds a Ph.D. from the University of Washington. He resides in Bellingham and can be reached at floydmckay@comcast.net.